Audit Completion Report - Manchester

Audit Completion ReportManchester City CouncilYear ended 31 March 2019Draft v2.2

CONTENTS

1. Executive summary

2. Audit approach

3. Significant findings

4. Internal control recommendations

5. Summary of misstatements

6. Value for Money conclusion

Appendix A – Draft management representation letter

Appendix B – Draft auditor’s report

Appendix C – Independence

Our reports are prepared in the context of the ‘Statement of responsibilities of auditors and audited bodies’ and the ‘Appointing Person Terms of Appointment’ issued

by Public Sector Audit Appointments Limited.

Reports and letters prepared by appointed auditors and addressed to the Council are prepared for the sole use of the Council and we take no responsibility to any

member or officer in their individual capacity or to any third party.

Mazars LLP is the UK firm of Mazars, an international advisory and accountancy group. Mazars LLP is registered by the Institute of Chartered Accountants in

England and Wales.

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Mazars LLP

One St Peter’s Square

Manchester

M2 3DE

Members of the Audit Committee

Manchester City Council

Mount Street

Manchester

M30 2LA

23 July 2019

Dear Members of the Audit Committee

Audit Completion Report – Year ended 31 March 2019

We are pleased to present our Audit Completion Report for the year ended 31 March 2019.

The purpose of this document is to summarise our audit conclusions.

The scope of our work, including identified significant audit risks, key audit matters and other

areas of management judgement, was outlined in our Audit Strategy Memorandum which we

presented on 11 February 2019. We have reviewed our Audit Strategy Memorandum and

concluded that the original significant audit risks, key audit matters and other areas of

management judgement remain appropriate.

We would like to express our thanks for the assistance of your team during our audit.

If you would like to discuss any matters in more detail then please do not hesitate to contact

me on 07721 234043.

Yours faithfully

Karen Murray

Mazars LLP

Mazars LLP is the UK firm of Mazars, an integrated international advisory and accountancy organisation. Mazars LLP is a limited liability partnership

registered in England and Wales with registered number OC308299 and with its registered office at Tower Bridge House, St Katharine’s Way, London

E1W 1DD.

We are registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Details about our audit

registration can be viewed at www.auditregister.org.uk under reference number C001139861.

VAT number: 839 8356 73

Mazars LLP – One St Peter’s Square, Manchester

Tel: 0161–238 9233– www.mazars.co.uk

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Purpose of this report and principal conclusions

The Audit Completion Report sets out the findings from our audit of Manchester City Council (the

Council) for the year ended 31 March 2019, and forms the basis for discussion at the Audit

Committee meeting on 30 July 2019.

The detailed scope of our work as your appointed auditor for 2018/19 is set out in the National Audit

Office’s (NAO) Code of Audit Practice. Our responsibilities and powers are derived from the Local

Audit and Accountability Act 2014 and, as outlined in our Audit Strategy Memorandum, our audit has

been conducted in accordance with International Standards of Auditing (UK) and means we focus on

audit risks that we have assessed as resulting in a higher risk of material misstatement.

Sections 3 and 6 of this report outline the detailed findings from our work on the financial statements

and our conclusion on the Council's arrangements to achieve economy, efficiency and effectiveness

in its use of resources. Section 3 also includes our conclusions on the audit risks and areas of

management judgement in our Audit Strategy Memorandum, which include:

• Management override of control

• Valuation of net pension fund liability

• Group consolidation

Status of our work

At the time of drafting this report, our work is substantially complete. Subject to the

satisfactory completion of the outstanding work, at the time of issuing this report, our

conclusions are summarised on the following page:

1. EXECUTIVE SUMMARY

3

Executive summary Audit ApproachSignificant

findingsInternal control

recommendationsSummary of

misstatementsValue for Money

conclusionAppendices

1. EXECUTIVE SUMMARY (CONTINUED)

4

We anticipate issuing an unqualified opinion, without modification, on the

financial statements. Our proposed audit opinion is included in the draft

auditor’s report in Appendix B.

Opinion on

the financial

statements

Whole of

Government

Accounts

(WGA)

Value for

Money

conclusion

Wider

powers






We anticipate concluding that the Council had proper arrangements in

place to secure economy efficiency and effectiveness in its use of

resources. Our draft auditor’s report, including this proposed conclusion is

provided in Appendix B. .

We anticipate completing our work on your WGA submission, in line with

the group instructions issued by the NAO, in line with the deadline of 13

September 2019. We anticipate reporting that the WGA submission is

consistent with the audited financial statements. .

The 2014 Act requires us to given an elector, or any representative of the

elector, the opportunity to question us about the accounting records of

the Council and to consider any objection made to the accounts. No

questions or objections have been received.

Status of our audit work

We have substantially completed our work on the financial statements and Value for Money

conclusion for the year ended 31 March 2019. At the time of preparing this report the following

matters remain outstanding:

We will provide the Audit Committee with an update in relation to these outstanding matters in a

follow-up letter, prior to signing the auditor’s report.

1. EXECUTIVE SUMMARY (CONTINUED)

5






Audit area Status Description of outstanding matters

Group consolidationWe have commenced our Group consolidation audit work and are

following up queries with management.

Land & buildings

valuation

We are awaiting supporting information from the Council’s valuers to

support valuations provided for the remainder of our sample of land and

buildings.

GeneralWe are awaiting responses to a small number of queries in respect of

audit sample items.

General Sundry audit housekeeping matters and audit completion steps.

Whole of Government

Accounts

The deadline set by the NAO for the completion of this work is 13

September 2019.

Signed final

statements and signed

Management

Representation Letter

Following the Audit Committee on 30 July 2019, the Council will provide

updated and signed copies of the financial statements, annual

governance statement and Management Representation Letter.

Status

Likely to result in material adjustment or significant change to disclosures within the financial statements

Potential to result in material adjustment or significant change to disclosures within the financial statements

Not considered likely to result in material adjustment or change to disclosures within the financial

statements

2. AUDIT APPROACH

6

Executive summary Audit approachSignificant





Misstatements and internal control recommendations

Section 4 sets out the internal control recommendations that we make, together with an update on

any prior year recommendations.

Section 5 outlines the misstatements noted as part of our audit as at the time of issuing this report. If

any additional misstatements are noted on completion of the outstanding work, these will be reported

to the Audit Committee in a follow-up letter.

Our audit approach

We provided details of our intended audit approach in our Audit Strategy Memorandum in February

2019. We have not made any significant changes to our audit approach since we presented our Audit

Strategy Memorandum. For the Group audit we reported that we would undertake comprehensive

audit procedures in our assessment of DML Ltd but subsequently changed to analytical procedures

as the DML accounts themselves are not material to the Group.

Materiality

We set materiality at the planning stage of the audit at £30.261m for the Council and £35.739m for

the Group using a benchmark of 1.75% of Gross Operating Expenditure. Our final assessment of

materiality, based on the final financial statements and qualitative factors remained unchanged and

using the same benchmark. We set our trivial threshold (the level under which individual errors are

not communicated to the Audit Committee, at £0.907m for the Council and £1.072m for the Group

based on 3% of overall materiality.

For qualitative reasons and public interest we have applied a lower specific materiality to Officers

Emoluments and Senior Employees Remuneration (note 21) and Exit Packages (note 22) to ensure

each disclosure is in the correct disclosure banding.

Key summary of audit approach and findings

We have summarised the key information regarding our approach, risks and significant findings for the

Comprehensive Income & Expenditure Statement and Balance Sheet in the tables below. Further information

on the findings are provided in sections 3 and 5.

Comprehensive Income & Expenditure Statement

Balance Sheet

2. AUDIT APPROACH (CONTINUED)

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recommendationsSummary of audit

adjustmentsValue for Money


Account area

Material

misstatement

risk

Risk

description

Key Audit

Matter

Changes to

audit

approach

Significant audit

findings

Net cost of services Standard - No None No

Other operating

expenditureStandard - No None No

Financing and

investment I&EStandard - No None No

Taxation and non-

specific grant I&EStandard - No None No

Other comprehensive

I&EStandard - No None No

Account area

Material

misstatement

risk

Risk

description

Key Audit

Matter

Changes to

audit

approach

Significant audit

findings

Property, plant and

equipmentSignificant Valuation risk Yes None

Material error in Group

(adjusted)

Long term

investmentsStandard - No None No

Short term debtors Standard - No None No

Cash and cash

equivalentsStandard - No None No

Short term creditors Standard - No None No

Borrowings Standard - No None No

Provisions Standard - No None No

Pension Liabilities Significant

Valuation of

GMPF pension

liability

Yes NoneNon-material estimation

difference (unadjusted)

Reserves Standard - No None No

2. AUDIT APPROACH (CONTINUED)

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Overview of our group audit approach

Our Audit Strategy memorandum provided details of our intended group audit approach, including

our initial assessment of group materiality. The table below confirms the approach we have taken to

auditing the Council's consolidated financial statements.

The Council commissions independent valuation reports to assess the valuation of Manchester Airport (MAHL) and the Manchester Convention Centre (DML) for consolidation purposes.

The Council has applied a consideration of materiality in determining which of its subsidiaries,

associates and joint ventures to consolidate into its Group financial statements. The Council’s

consideration of the material impact of these interests on its Group financial statements is in

accordance with the applicable financial reporting framework.

Entity

Nature of

entity

audit

AuditorDescription of audit procedures

undertaken on the component

Changes to

audit approach

Manchester City

Council (parent)

NAO Code

auditMazars LLP

Comprehensive: Full audit of the Council’s

financial statements and consolidation

process.

None

Manchester

Airport Holdings

Ltd (MAHL)

(Joint Venture)

Statutory

auditKPMG

Comprehensive: Review of the component’s

financial statements and liaison with the

component’s auditor to assess risk’s relevant

to the Group.

None

DML Ltd

(subsidiary)

Statutory

auditKPMG

Analytical: Desktop analytical procedures

carried out by Mazars on the financial

information prepared for group reporting

purposes using component materiality.

Change from

comprehensive

as DML not

material

3. SIGNIFICANT FINDINGS

Set out below are the significant findings from our audit. These findings include:

• our findings on key audit matters, including:

• why the matter was considered to be one of the most significance in the audit andtherefore determined to be a key audit matter;

• how the matter was addressed in the audit including a summary of our response;

• where relevant, key observations arising with respect to each matter; and

• a clear reference to the relevant disclosures in the financial statements

• our audit conclusions regarding significant risks and key areas of management judgementoutlined in the Audit Strategy Memorandum;

• our comments in respect of the accounting policies and disclosures that you have adoptedin the financial statements. On page 14 we have concluded whether the financialstatements have been prepared in accordance with the financial reporting framework andcommented on any significant accounting policy changes that have been made during theyear;

• any further significant matters discussed with management; and

• any significant difficulties we experienced during the audit.

As part of our planning procedures we considered the risks of material misstatement in the Council'sfinancial statements that required special audit consideration. Although we report identified key auditmatters and significant risks at the planning stage of the audit in our Audit Strategy Memorandum,our risk assessment is a continuous process and we regularly consider whether new key auditmatters and significant risks have arisen and how we intend to respond to these risks. No new riskshave been identified since we issued our Audit Strategy Memorandum.

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Key audit matters

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Valuation of

Property, Plant

& Equipment

Description of the key audit matter

The CIPFA Code requires that where assets are subject to revaluation, their year-end carrying

value should reflect the fair value at that date. The Council has adopted a rolling revaluation

model which sees all land and buildings revalued in a five-year cycle.

The valuation of Property, Plant & Equipment involves the use of a management expert (the

valuer) and incorporates assumptions and estimates which impact materially on the reported

value. There are risks relating to the valuation process.

As a result of the rolling programme of revaluations, there is a risk that individual assets which

have not been revalued for up to four years are not valued at their materially fairly stated fair

value. In addition, as the valuations are undertaken through the year there is a risk that the fair

value as the assets is materially different at the year end.

Council Dwelling valuations are based on Existing Use Value, discounted by a factor to reflect

that the assets are used for Social Housing (EUV-SH). The Social Housing adjustment factor is

prescribed in MHCLG guidance, but this guidance indicates that where a valuer has evidence

that this factor is different in the Council’s area they can use their more accurate local factor.

There is a risk that the Council's application of the valuer’s assumptions is not in line with the

statutory requirements and that the valuation is not supported by detailed evidence.

How we addressed the key audit matter

We have:

• Critically assessed the Council’s valuer’s scope of work, qualifications, objectivity and

independence to carry out the Council’s programme of revaluations;

• Considered whether the overall revaluation methodology used by the Council valuer is in line

with industry practice, social housing statutory guidance, the CIPFA Code of Practice and

the Council’s accounting policies;

• Critically assessed the appropriateness of the underlaying data and the key assumptions

used in the valuer’s calculations;

• Critically assessed the appropriateness of the social housing factor applied to the valuation

of the Council Dwellings;

• Assessed the movement in market indices between the revaluation dates and the year end

to determine whether there have been material movements over that time;

• Critically assessed the treatment of the upward and downward revaluations in the Council’s

financial statements with regards to the requirements of the CIPFA Code of Practice;

• Critically assessed the approach that the Council adopts to ensure that assets not subject to

revaluation in 2018/19 are materially fairly stated; and

• Tested a sample of items of capital expenditure in 2018/19 to confirm that the additions are

appropriately valued in the financial statements.

Observations and conclusions

We have not identified any significant matters from our testing, and subject to completion of our

remaining work we have concluded that the Council’s Property, Plant & Equipment is materially

fairly stated.


Key audit matters

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Valuation of

Defined Benefit

Pension

Liability

Description of the key audit matter

The net pension liability represents a material element of the Council’s balance sheet. The

Council is an admitted body of Greater Manchester Pension Fund, which had its last triennial

valuation completed as at 31 March 2016.

The valuation of the Local Government Pension Scheme relies on a number of assumptions,

most notably around the actuarial assumptions, and actuarial methodology which results in the

Council’s overall valuation.

There are financial assumptions and demographic assumptions used in the calculation of the

Council’s valuation, such as the discount rate, inflation rates and mortality rates. The

assumptions should also reflect the profile of the Council’s employees, and should be based on

appropriate data. The basis of the assumptions is derived on a consistent basis year to year, or

updated to reflect any changes.

There is a risk that the assumptions and methodology used in valuing the Council’s pension

obligation are not reasonable or appropriate to the Council’s circumstances. This could have a

material impact to the net pension liability in 2018/19.

How we addressed the key audit matter

We have:

• Critically assessed the competency, objectivity and independence of the Greater Manchester

Pension Fund’s Actuary, Hymans Robertson;

• Liaised with the auditors of the Greater Manchester Pension Fund to gain assurance that the

controls in place at the Pension Fund are operating effectively. This included the processes

and controls in place to ensure data provided to the Actuary by the Pension Fund for the

purposes of the IAS19 valuation is complete and accurate;

• Reviewed the appropriateness of the Pension Asset and Liability valuation methodologies

applied by the Pension Fund Actuary, and the key assumptions included within the valuation.

This included comparing them to expected ranges, utilising information provided by PWC,

consulting actuary engaged by the National Audit Office;

• Agreed the data in the IAS 19 valuation report provided by the Fund Actuary for accounting

purposes to the pension accounting entries and disclosures in the Council’s financial

statements.

Observations and conclusions

We have not identified any significant matters from our testing, and we have concluded that the

Council’s reported net defined benefit pension liability is materially fairly stated. We have

reported a non-material estimation difference regarding the impact of Guaranteed Minimum

Pension and McCloud legal cases. Management identified the impact following a revised

actuarial valuation in July 2019. Details are reported in section 5.

3. SIGNIFICANT FINDINGS (CONTINUED)

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Management

override of controls

Description of the risk

In all entities, management at various levels within an organisation are in a unique position

to perpetrate fraud because of their ability to manipulate accounting records and prepare

fraudulent financial statements by overriding controls that otherwise appear to be operating

effectively. Due to the unpredictable way in which such override could occur, we consider

there to be a risk of material misstatement due to fraud and thus a significant risk on all

audits.

How we addressed this risk

We addressed this risk through performing audit work over:

• Accounting estimates impacting on amounts included in the financial statements;

• Consideration of identified significant transactions outside the normal course of

business, being:

• The additional loan provided to Manchester Airport Holdings Limited.

• Journals recorded in the general ledger and other adjustments made in preparation of

the financial statements.

Audit conclusion

There are no significant matters arising from our work on the management override of

controls.

Significant risks

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Group Financial

Statements

consolidation

process

Description of the management judgement

The Council has made judgements around which of its group entities it consolidates into its

Group Financial Statements, and how it consolidates the transactions and balances into the

Group.

How our audit addressed this area of management judgement

Our approach to auditing the Group Financial Statements has been detailed in section 2.

We have complemented this work with our work over the Council’s Group consolidation process.

In particular we have reviewed the Council’s judgements relating to the entities that are

consolidated into the Group financial statements, and we have reviewed and tested the method

of consolidation of those group entities into the Group financial statements.

Management prepared the initial consolidation of MAHL based upon their draft financial results.

MAHL subsequently provided audited financial statements which were used by management to

re-prepare the consolidation.

Management commissions an independent valuation of Manchester Airport and the Manchester

Convention Centre to convert to IFRS Fair Value for consolidation.

Audit conclusion

Our review of the independent valuations resulted in management recognising these assets were

double counted in the Group financial statements because the Council’s interest was added to

the component bodies interests. Details of the errors are shown at section 5.

Subject to completing our audit work and receiving responses to audit queries in this area, other

than the adjustments described in section 5, there are no significant matters arising from our

audit of the Group Financial Statements consolidation process.

Areas of management judgement

Qualitative aspects of the Council’s accounting practices

The Council is required to prepare its financial statements on a going concern basis by the Code of

Practice on Local Authority Accounting (the Code). We have considered the appropriateness of the

use of the going concern assumption and have reviewed the Council’s accounting policies and

disclosures and concluded they comply with the requirements of the Code, appropriately tailored to

the Council’s circumstances.

Draft accounts were received from the Council on 31 May 2019, in line with the statutory deadline

and were of a good quality. Good quality supporting working papers have been made available in a

timely manner and these have assisted our audit progress. Council finance officers have been helpful

in promptly answering our detailed audit queries.

The draft Group accounts were submitted based upon a schedule of balances for Manchester Airport

Holdings Ltd (MAHL). Upon receipt of audited MAHL accounts management re-prepared the

consolidated Group accounts. The audit identified errors in the consolidation process as set out in

Section 5, resulting in revised Group accounts.

Significant matters discussed with management

The following significant matters were discussed with management during the course of the audit:

the impact of the Guaranteed Minimum Pension and McCloud legal cases on the pension

deficit; and

the valuation of Manchester Airport land in arriving at the Group consolidation.

Significant difficulties during the audit

During the course of the audit we did not encounter any significant difficulties and we have had the

full co-operation of management.

Wider responsibilities

Our powers and responsibilities under the 2014 Act are broad and include the ability to:

issue a report in the public interest;

make statutory recommendations that must be considered and responded to publicly;

apply to the court for a declaration that an item of account is contrary to law; and

issue an advisory notice under schedule 8 of the 2014 Act.

We have not exercised any of these powers as part of our 2018/19 audit.

The 2014 Act also gives rights to local electors and other parties, such as the right to ask questions

of the auditor and the right to make an objection to an item of account. At the date of producing this

report we have not received any questions or objections during our audit from electors.

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The purpose of our audit is to express an opinion on the financial statements. As part of our audit we

have considered the internal controls in place relevant to the preparation of the financial statements.

We do this in order to design audit procedures to allow us to express an opinion on the financial

statement and not for the purpose of expressing an opinion on the effectiveness of internal control,

nor to identify any significant deficiencies in their design or operation.

The matters reported are limited to those deficiencies and other control recommendations that we

have identified during our normal audit procedures and that we consider to be of sufficient

importance to merit being reported. If we had performed more extensive procedures on internal

control we might have identified more deficiencies to be reported or concluded that some of the

reported deficiencies need not in fact have been reported. Our comments should not be regarded as

a comprehensive record of all deficiencies that may exist or improvements that could be made.

Our findings and recommendations are set out below. We have assigned priority rankings to each of

them to reflect the importance that we consider each poses to your organisation and, hence, our

recommendation in terms of the urgency of required action. In summary, the matters arising fall into

the following categories:

Priority ranking Description Number of issues

1 (high) In our view, there is potential for financial loss, damage to reputation or loss

of information. This may have implications for the achievement of business

strategic objectives. The recommendation should be taken into

consideration by management immediately.

0

2 (medium) In our view, there is a need to strengthen internal control or enhance

business efficiency. The recommendations should be actioned in the near

future.

2

3 (low) In our view, internal control should be strengthened in these additional

areas when practicable.

0

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4. INTERNAL CONTROL RECOMMENDATIONS






Significant deficiencies in internal control – Level 1 None

Description of deficiency – Related party transactions

Members and senior officers are not requested to declare their interests on an annual basis. An annual declaration is

considered to be good practice.

Potential effects

Interests which may conflict with the Council’s activities and associated safeguards could be missed.

Recommendation

Undertake an annual exercise to request all Members and Senior Officers to update the Register of Interests.

Management response

We agree in principal with the recommendation and will liaise with Democratic Services to amend the Council

Constitution and implement a process to update the Register of Interests.

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4. INTERNAL CONTROL RECOMMENDATIONS (CONTINUED)






Other deficiencies in internal control – Level 2

Description of deficiency – IT access privileged access users

There are 112 Active Directory privileged users registered at the Council. Privileged access gives administrator rights

and access to critical systems and data and should therefore be tightly controlled. We consider that 112 privileged

users appears high.

Potential effects

A high number of privileged users increases the risk of privileged access being abused impacting on the security and

integrity of systems and data.

Recommendation

The number of active privileged user accounts (identified with the privileged user prefix) should be reviewed and if no

longer required should be disabled or deleted.

Management response

The recommendation is duly noted and accepted. Work is underway to ensure the number of privileged users aligns to

the specific roles and responsibilities that require privileged access. Where it is identified that privilege access is no

longer required or appropriate then this access will be removed. We will liaise with the Council's audit team to review

progress.

We set out below the misstatements identified for adjustment during the course of the audit, above

the level of trivial threshold of £0.907m (Council) and £1.072m (Group).

The first table outlines the misstatements that were identified during the course of our audit which

management has assessed as not being material, either individually or in aggregate, to the financial

statements and does not currently plan to adjust.

The second table outlines the misstatements that have been adjusted by management during the

course of the audit.

Unadjusted misstatement

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5. SUMMARY OF MISSTATEMENTS






Comprehensive Income

and Expenditure

Statement

Balance Sheet

Dr Cr Dr Cr

1 Dr Net cost of services (Past Service Cost)

Cr Re-measurement of pension liability

Dr Pension Reserve

Cr Pension Liability

£21.1m

-

-

-

-

£21.1m

-

-

-

£21.1m

-

-

-

£21.1m

Relates to an actuarial estimate of the additional cost to the net pension fund liability arising from the Guaranteed

Minimum Pension and McCloud legal case.

The adjustment would increase the Council’s pension liability by £21.1m, with a corresponding increase in the

Pension Reserve. The transactions would be included within the service costs (as a past service cost) and adjusted

through the Movement in Reserves Statement so that they do not impact on the Council’s Usable Reserves.

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Comprehensive Income

and Expenditure

Statement

Balance Sheet

Dr Cr Dr Cr

1 Dr: Group Reserves

Cr: Group Long Term Investments

-

-

-

-

£92.8m

-

-

£92.8m

To correct a double counting of Manchester Airport land and buildings valuation for the Property Plant &

Equipment in the Group Consolidation. This has also resulted in a prior year adjustment of £87m.

2 Dr: Group Reserves

Cr: Group Property Plant and Equipment

-

-

-

-

£15.2m

-

-

£15.2m

To correct a double counting of Manchester Convention Centre valuation for the Property Plant & Equipment in

the Group Consolidation. This has also resulted in a prior year adjustment of £19.1m.

5. SUMMARY OF MISSTATEMENTS (CONTINUED)

Adjusted misstatements 2018/19






Disclosure amendments

In addition to the adjustments outlined above, the Council has made a number of amendments to the

disclosures in the financial statements.

Among these adjustment were contextual or presentational adjustments made as follows:

• reclassification to financial instruments disclosures in note 1 totalling £99m;

• correction of an overstatement of business rates income £2.47m with a corresponding

understatement of council tax income impacting notes 12 and 18; and

• updates to notes 21 and 22 relating to officer’s emoluments.

• removing the Reconciliation of the Single Entity Comprehensive Income and Expenditure

Statement Deficit to the Group Comprehensive Income and Expenditure Statement Deficit from a

Group Primary Statement to a note to the accounts.

19

5. SUMMARY OF MISSTATEMENTS (CONTINUED)






Our approach to Value for Money

We are required to form a conclusion as to whether the Council has made proper arrangements forsecuring economy, efficiency and effectiveness in its use of resources. The NAO issues guidance toauditors that underpins the work we are required to carry out in order to form our conclusion, and setsout the criterion and sub-criteria that we are required to consider.

The overall criterion is that, ‘in all significant respects, the Council had proper arrangements toensure it took properly informed decisions and deployed resources to achieve planned andsustainable outcomes for taxpayers and local people.’ To assist auditors in reaching a conclusion onthis overall criterion, the following sub-criteria are set out by the NAO:

Informed decision making;

Sustainable resource deployment; and

Working with partners and other third parties.

A summary of the work we have undertaken is provided below:

Significant Value for Money risks

The NAO’s guidance requires us to carry out work to identify whether or not a risk to the Value forMoney conclusion exists. Risk, in the context of our Value for Money work, is the risk that we cometo an incorrect conclusion rather than the risk of the arrangements in place at the Council beinginadequate. In our Audit Strategy Memorandum, we reported that we had identified one significantValue for Money risk relating to the financial sustainability of the Council in the medium term.

The work we carried out in relation to the significant risk is outlined overleaf.

Our overall Value for Money conclusion

Our draft auditor’s report included in Appendix B states that we intend to issue an unqualified Valuefor Money conclusion for the 2018/19 financial year.

20

6. VALUE FOR MONEY CONCLUSION






Risk assessment

NAO Guidance

Sector-wide issues

Risk mitigation work Other procedures

Consider the work of

regulators

Planned procedures to

mitigate the risk of forming

an incorrect conclusion on

arrangements

Consider the Annual

Governance StatementYour operational and business

risks

Consistency review and

reality checkKnowledge from other audit

work

Significant Value for Money risk

21

6. VALUE FOR MONEY CONCLUSION (CONTINUED)

Risk: Health and Social

Care Integration

Work undertaken and findings Conclusion

From 1 April 2017 the Manchester

Health and Care Commissioning

(MHCC) Board has been in place,

with representatives from health

and social care commissioning,

governing the commissioning

spend in Manchester. A key part

of the single commissioning

function is that integrated

decision making will take place for

the health and social care

commissioning budgets in

Manchester.

The partnership between the

Clinical Commissioning Group

(CCG) and the Council is

supported through a new section

75 partnership arrangement (S75)

from 1 April 2018. As part of the

partnership arrangements, the

CCG and the Council have

agreed to establish and maintain

an Integrated Care Budget which

will be used by the MHCC Board

to commission the Services as set

out in the Locality Plan.

.

We have reviewed documentation to gain an

understanding of the governance and decision

making arrangements which underpin successful joint

commissioning across Manchester. This has included

understanding the financial impact for the Council. We

have also noted and reflected the valuable insight

from the Council’s Internal Audit function.

Findings

The Council has worked closely with health partners

across the city to improve and coordinate health and

care services for residents. Service delivery and

governance arrangements for MHCC and the

Manchester Local Care Organisation (MLCO) are

reported to Members and Senior Management

through Senior Management Team, Executive, Health

& Wellbeing Board and Health Scrutiny Committee.

MHCC operates as a partnership between the Council

and CCG under a Section 75 agreement underpinned

by a financial framework. MHCC leads the

commissioning of health, adult social care and public

health services although statutory responsibility for

social care and public health remains with the

Council. Reporting is through MHCC Finance

Executive and upwards to MHCC Executive. The

governance function was strengthened in the autumn

of 2018 building upon lessons learnt from the early

stages of joint working.

The financial framework requires an Integrated Care

Budget (ICB) of which the Better Care Fund (BCF) is

a subset. Total BCF funding for 2018/19 was £110.3m

of which the Council contributed £38.2m (35%) and

CCG £72.1m (65%). Of the total, £72.3m was spent

on new delivery models of integrated care.

MLCO is the vehicle for the delivery of commissioned

health and care. Although not a statutory partnership

between health providers there is a ten year

partnering agreement effective 1 April 2018. Statutory

responsibility for adult social care remains with the

Council. MLCO Executive receives monthly update

reports on performance.

.

We conclude that for

2018/19 the Council has

proper governance

arrangements to deliver joint

Health and Social Care

Commissioning. This should

help integrate the three

pillars of the overall Locality

Plan being the LCO, Joint

commissioning by MHCC

and the singe hospital

service.






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APPENDIX ADRAFT MANAGEMENT REPRESENTATION LETTER

Draft management representation letter (prepare on Council

letterhead)

Karen Murray

Director

Mazars LLP

One St Peter’s Square

Manchester

M2 3DE

31 July 2019

Dear Karen

Manchester City Council and Group - audit for year ended 31 March 2019

This representation letter is provided in connection with your audit of the financial statements of

Manchester City Council and Group (the Council and Group) for the year ended 31 March 2019

for the purpose of expressing an opinion as to whether the financial statements give a true and

fair view in accordance with the CIPFA/LASAAC Code of Practice on Local Authority

Accounting in the United Kingdom 2018/19 (the Code) and applicable law.

I confirm that the following representations are made on the basis of enquiries of management

and staff with relevant knowledge and experience (and, where appropriate, inspection of

supporting documentation) sufficient to satisfy ourselves that I can properly make each of the

following representations to you.

My responsibility for the financial statements and accounting information

I believe that I have fulfilled my responsibilities for the true and fair presentation and preparation

of the financial statements in accordance with the Code and applicable law.

My responsibility to provide and disclose relevant information

I have provided you with:

access to all information of which we are aware that is relevant to the preparation of the

financial statements such as records, documentation and other material;

additional information that you have requested from us for the purpose of the audit; and

unrestricted access to individuals within the Council and Group you determined it was

necessary to contact in order to obtain audit evidence.

I confirm as Deputy Chief Executive and City Treasurer and s151 officer that I have taken all

the necessary steps to make me aware of any relevant audit information and to establish that

you, as auditors, are aware of this information.

As far as I am aware there is no relevant audit information of which you, as auditors, are

unaware.






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Accounting records

I confirm that all transactions that have a material effect on the financial statements have

been recorded in the accounting records and are reflected in the financial statements. All

other records and related information, including minutes of all Council and committee

meetings, have been made available to you.

Accounting policies

I confirm that I have reviewed the accounting policies applied during the year in accordance

with Code and International Accounting Standard 8 and consider these policies to faithfully

represent the effects of transactions, other events or conditions on the Council and Group’s

financial position, financial performance and cash flows.

Accounting estimates, including those measured at fair value

I confirm that any significant assumptions used by the Council and Group in making

accounting estimates, including those measured at current or fair value, are reasonable.

I confirm the following matters regarding estimation uncertainty:

• the appropriateness of the measurement process, including related assumptions and

models, used in determining accounting estimates under IFRS, and the consistency of

application of the process;

• that disclosures related to accounting estimates are complete and appropriate under IFRS;

and

• that no subsequent event requires adjustment to the accounting estimates and disclosures

included in the financial statements.

Contingencies

There are no material contingent losses including pending or potential litigation that should be

accrued where:

• information presently available indicates that it is probable that an asset has been impaired

or a liability had been incurred at the balance sheet date; and

• the amount of the loss can be reasonably estimated.

There are no material contingent losses that should be disclosed where, although either or

both the conditions specified above are not met, there is a reasonable possibility that a loss,

or a loss greater than that accrued, may have been incurred at the balance sheet date.

There are no contingent gains which should be disclosed.

All material matters, including un-asserted claims, that may result in litigation against the

Council and Group have been brought to your attention. All known actual or possible litigation

and claims whose effects should be considered when preparing the financial statements have

been disclosed to you and accounted for and disclosed in accordance with the Code and

applicable law.

There are no contingent liabilities.






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Laws and regulations

I confirm that I have disclosed to you all those events of which I am aware which involve

known or suspected non-compliance with laws and regulations, together with the actual or

contingent consequences which may arise therefrom.

The Council and Group has complied with all aspects of contractual agreements that would

have a material effect on the accounts in the event of non-compliance.

Fraud and error

I acknowledge my responsibility as Deputy Chief Executive / City Treasurer (s151 Officer) for

the design, implementation and maintenance of internal control to prevent and detect fraud

and error.

I have disclosed to you:

all the results of my assessment of the risk that the financial statements may be

materially misstated as a result of fraud;

all knowledge of fraud or suspected fraud affecting the Council and Group involving:

o management and those charged with governance;

o employees who have significant roles in internal control; and

o others where fraud could have a material effect on the financial statements.

I have disclosed to you all information in relation to any allegations of fraud, or suspected

fraud, affecting the Council and Group’s financial statements communicated by employees,

former employees, analysts, regulators or others.

Related party transactions

I confirm that all related party relationships, transactions and balances, have been

appropriately accounted for and disclosed in accordance with the requirements of the Code

and applicable law.

I have disclosed to you the identity of the Council and Group’s related parties and all related

party relationships and transactions of which I am aware.

Future commitments

I am not aware of any plans, intentions or commitments that may materially affect the carrying

value or classification of assets and liabilities or give rise to additional liabilities.






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Subsequent events

I confirm all events subsequent to the date of the financial statements and for which the Code

and applicable law, require adjustment or disclosure have been adjusted or disclosed.

Should further material events occur after the date of this letter which may necessitate

revision of the figures included in the financial statements or inclusion of a note thereto, I will

advise you accordingly.

Going concern

To the best of my knowledge there is nothing to indicate that the Council and Group will not

continue as a going concern in the foreseeable future. The period to which I have paid

particular attention in assessing the appropriateness of the going concern basis is not less

than twelve months from the date of approval of the accounts.

Unadjusted misstatements

I confirm that the effects of the uncorrected misstatements are immaterial, both individually

and in aggregate, to the financial statements as a whole.

Yours faithfully

Carol Culley

Deputy Chief Executive and City Treasurer






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APPENDIX BDRAFT AUDITOR’S REPORT






Independent auditor’s report to the members of Manchester City Council

Report on the financial statements

Opinion

We have audited the financial statements of Manchester City Council (‘the Council’) and its

subsidiaries (‘the Group’) for the year ended 31 March 2019, which comprise the Council and Group

Comprehensive Income and Expenditure Statements, the Council and Group Movement in Reserves

Statements, the Council and Group Balance Sheets, the Council and Group Cash Flow Statements, the

Council Housing Revenue Account (HRA) Income and Expenditure Statement, the Collection Fund, and

notes to the financial statements, including a summary of significant accounting policies. The financial

reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC

Code of Practice on Local Authority Accounting in the United Kingdom 2018/19.

In our opinion, the financial statements:

give a true and fair view of the financial position of the Council and the Group as at 31st March 2019 and

of the Council’s and the Group’s expenditure and income for the year then ended; and

have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local

Authority Accounting in the United Kingdom 2018/19.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and

applicable law. Our responsibilities under those standards are further described in the Auditor’s

responsibilities section of our report. We are independent of the Council in accordance with the ethical

requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s

Ethical Standard as applicable to public interest entities, and we have fulfilled our other ethical

responsibilities in accordance with these requirements. We believe that the audit evidence we have

obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require

us to report to you where:

the Deputy Chief Executive and City Treasurer’s use of the going concern basis of accounting in the

preparation of the financial statements is not appropriate; or

the Deputy Chief Executive and City Treasurer has not disclosed in the financial statements any

identified material uncertainties that may cast significant doubt about the Council’s ability to continue to

adopt the going concern basis of accounting for a period of at least twelve months from the date when

the financial statements are authorised for issue.

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APPENDIX BDRAFT AUDITOR’S REPORT (CONTINUED)






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As part of our ongoing risk assessment we monitor our relationships with you to identify any new

actual or perceived threats to our independence within the regulatory or professional requirements

governing us as your auditors.

We can also confirm that we have received confirmation from our external experts regarding their

independence.

We have not been engaged by any of the Council’s group entities to provide any audit or non-audit

services during 2018/19.

During the audit the following issue arose which could be perceived as a threat to our independence.

The table below details the potential threat and the safeguards put in place to mitigate the risk.

Issue Perceived threats Safeguards

We have been invited and agreed to

undertake a Homes England

Certification audit for the Council.

Self interest.

Objectivity

The audit fee for the work is £2,750

which is immaterial to the overall audit

fee charged to the Council, and the

overall fee income to the Firm.

A separate audit team is engaged to

perform the Homes England audit.

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APPENDIX CINDEPENDENCE






Engagement Lead

Director: Karen Murray

Phone: 0161 238 9248

Mobile: 07721 234 043

Email: [email protected]

Engagement ManagerSenior Manager: Stephen NixonPhone: 0161 238 9233Mobile: 07909 986 191Email: [email protected]

CONTACT

Audit Completion Report - Manchester

Documents

Transcript of Audit Completion Report - Manchester